The Bush administration deserves an "A" for effort - but only a "C" for bravery - on its monumental proposal to rewrite the nation's anachronistic banking laws.

Despite its good points, the three-pound plan for modernizing the banking system is disappointing because it accepts the costly notion that some banks and some depositors are too big to fail.As long as the government continues to protect every dollar of every deposit, there isn't much incentive for banks to be cautious, prudent or even conservative about how they spend their money.

Theoretically, bank accounts are federally insured up to $100,000. As recently as 12 years ago, they were insured for only $40,000. Deposit insurance was supposed to protect the little guy with $10,000 or $20,000 in the bank, not the sophisticated investor who should be smart enough to protect himself.

In practice, the government has been fully protecting every deposit, whether the amount is $50, $5,000 or $5 million, on the dubious theory that failure to do so would destroy confidence in the banking system and drive investors away.

No one likes the too-big-to-fail doctrine, not even the American Bankers Association. Some of the largest banks in the country have spoken out against it.

"Why should the taxpayers bail out somebody who puts $100 million in Citibank?" asks William Isaac, a former chairman of the Federal Deposit Insurance Corp. "I don't understand that."

Isaac, who now does financial consulting at Arnold & Porter, a Washington law firm, would prefer to see investors take a 10 percent loss on deposits of more than $100,000, as proposed by the ABA, when banks collapse and taxpayers come to the rescue.

Unfortunately, the Bush proposal for reforming the banking system seems to perpetuate the too-big-to-fail doctrine instead of limiting coverage of uninsured deposits, as it claims to do.

The proposal gives the Treasury Department and the Federal Reserve Board the authority to step in and order that uninsured deposits be covered "in rare instances of systemic risk."

Given the political realities, it is hard to visualize any major bank failure in which big investors would be forced to take a loss.

As long as the uninsured are protected, it's foolish to reduce the $100,000 insurance lid for other depositors. If every dollar is covered, the lowering of limits is largely academic.

This doesn't mean the Bush reform plan is a bust. It isn't. The proposal to let banks open branches in all 50 states makes sense. So does the proposal to let companies in other businesses buy banks.

Why, for example, shouldn't Ford or General Electric go into banking if they can provide new and badly needed capital?

Similar arguments can be made for branch banking.

Most consumer groups oppose interstate banking, arguing that locally owned banks are more responsive to small-town borrowers than banks based in faraway cities.

Pursue that argument to its logical conclusion and we'd all be shopping at mom-and-pop grocery stores instead of supermarket chains. Who says a branch bank can't be sensitive to local needs?

Bank of America says it wastes $50 million a year in overhead because it must operate separate subsidiaries in six Western states. That's a dumb way to do business, no matter what the rules might be.